Since the early 1970s, there has been a dramatic transformation in the way financial institutions and advisors serve wealthy individuals and families. Today's holistic and multidisciplinary approach to managing client affairs is a relatively new phenomenon.

Indeed, the new approach is a significant departure from the narrowly defined and transactional nature of the business that was prevalent three decades ago among lenders, stockbrokers, and trust companies. The enhanced depth and breadth of services offered - and the very nature of the relationships themselves - are positive developments for clients and reflect the rapid technological, economic, and social changes that have occurred since the 1970s.

How Banking Slowly Morphed Fortunately, clients today can take for granted that a single relationship manager can facilitate all of their investing, borrowing, and trust needs while helping them accumulate, preserve, and transfer wealth. But it certainly wasn't always this way.

Over the past 30-plus years, the business of serving wealthy clients has gone by many monikers, and each time, it shifted - and broadened - the value delivered to clients. It started out as "personal banking," became "private banking," morphed into "private client services," and finally evolved into "wealth management."

Personal banking in the early 1970s was basically an adaptation of the corporate banking model, whereby large financial institutions made available lines of credit and generated interest income and fees.

Growth in the business was fueled by the arrival of large numbers of corporate banking professionals who had been displaced by the advent of asset securitization, which enabled corporations to access credit markets with relative ease through the issuance of commercial paper, rather than relying on their bankers to extend credit or float a bond issue. In effect, corporate banking and lending had become commoditized, and investment bankers simply brought their old business model to the world of personal banking.

Always a competitive lot, these investment bankers competed with each other to see who could offer higher credit lines to their clients - and these were largely unsecured loans. By the early 1980s, billions of dollars in bad loans had to be written off, and the search was on for a better business model.

Clients Take Center StagePrivate banking represented an incremental improvement. Banks exited the unsecured lending business and offered clients lower rates (based on LIBOR rather than the prime rate) if they secured their loans with cash deposits or securities. This stabilized the business, but further changes were quick to follow.

Once clients began to pledge securities as collateral, the next logical step was to offer investment services to help manage stock and bond portfolios. The move to private client services represented a significant shift in relationship dynamics, from the client being subordinate to the institution in a lending-based business to the reverse in an asset management business. The needs of the client took center stage as firms competed feverishly to gain more assets to manage.

Globalization Spurs Changes
Concurrent with the rise of private client services in the 1980s and early 1990s, the world was undergoing rapid changes on a number of fronts. The personal computer and 24-hour news cycles brought on by cable news - and later the Internet - accelerated the flow of information around the globe and spawned new industries and legions of newly wealthy individuals. Demographically, the baby boom generation grew up and entered their peak earning years.

During this time, institutions survived by specializing. Wilmington Trust focused on trust services; Merrill Lynch offered clients access to initial public offerings; Morgan Stanley specialized in emerging markets; Bankers Trust in derivative products. As a result, the high-net-worth business was fragmented with clients relying on different firms for different needs.

In the financial services world, discount brokers and cash management accounts intensified the competition for business. Barriers to global trade came down while instantaneous global communications became ubiquitous. New investment opportunities opened up overseas.

The bull market in stocks from 1982 to 2000 brought good times to most firms, but as the boom turned to bust at the turn of the new millennium, it became clear that firms could no longer hang their hats on investment management alone.

The Arrival of Wealth ManagementWithin the last decade, most firms serving high-net-worth clients have expanded their scope of services, but the process accelerated after the stock market bubble burst and corporate scandals surfaced.

Clients saw the shortcomings of "hot tips" on tech stocks or access to IPOs. They wanted a trusted source of advice to help them manage all aspects of their financial lives - from investment management to trust services and estate planning. Baby boomers and their parents who had accumulated wealth in previous decades needed help securing their retirements and transferring wealth to their children.

The evolutionary process from personal banking has been a beneficial one for clients. Institutions, fortunately, have responded by providing what is needed. High-net-worth individuals and families now have access to institutional-type investing services and a wide range of professionals to assist in all facets of financial planning.

Wealth management firms now compete on trust and reputation and recognize the importance of fiduciary duties to clients - a vast improvement over the early days of the business, and a transformation both clients and their advisors can appreciate.

This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.

Wilmington Trust is a registered service mark. Wilmington Trust Corporation is a wholly owned subsidiary of M&T Bank Corporation (M&T). Investment management and fiduciary services are provided by Wilmington Trust Company, operating in Delaware only, Wilmington Trust, N.A., a national bank, and M&T Bank. International corporate and institutional services are offered through Wilmington Trust Corporation's international affiliates. Loans, credit cards, retail and business deposits, and other business and personal banking services and products are offered by M&T Bank.